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Don't Let The Gold Bubblers Fool You!

Each time the price of gold takes a big drop, as it did last week, you'll see all of the same termites come out of the woodwork, saying that the gold bubble is about to burst and we're going much lower from here, as in 1980.

Such comments are completely misleading and ignorant of the factors that have and will continue to drive the price of gold ( and silver) higher.
First, you'll read and hear comments that "gold has gone mainstream." Really? If you believe that, then I'd ask you to please leave a comment here and let us know how many of your family members, colleagues, and friends own gold. I would hazard a guess that almost none of them have purchased any physical gold or silver, nor do they own any of the equities of the gold producers.

Of course, some will argue that this is simply anecdotal evidence that gold has not gone mainstream. That may be, but what makes anecdotal evidence any less compelling than charts and facts and figures? Do you really believe that facts and figures are always accurate?

As an example, do you believe it when the government reports that unemployment is in the neighborhood of 9%? If you believe that figure, then you've been duped, because the "real" unemployment rate is likely at least double that amount.

What about when the government tells us that inflation is running at 2%, or whatever figure they throw out. Anyone who is breathing and must purchase food knows that "real" price inflation is much higher than the figures the government throws out. 

You just have to compare what you were paying for your groceries a year ago to what you're paying now, and I can assure you're going to find "real" price inflation is much higher than the figures reported in the mainstream press.

So, back to gold and whether or not it has reached mainstream status and is in a bubble that is now going to burst. I believe that it is not.

The reasons for golds recent correction are more than one. First off, think about what the Swiss have done with their franc. They've made it quite clear that they are going to do whatever they can to keep it from strengthening. Hence, it is no longer viewed as a "safe haven" from uncertainty. This led many investors to flee to the U.S. dollar. 

However, the rally in the U.S. dollar will not last. If the U.S. dollar continues to rise in value against other currencies, it will create a serious problem in terms of the U.S. paying off its' debts, and therefore the U.S. will be pushed into a position where it must devalue the dollar. 

This will only be good for precious metals, such as gold and silver, and the stocks of companies that are producing these hard assets. The fact that the markets tanked last week, and took gold and silver prices with them should not have surprised anyone who is keeping attuned to the world's economic woes (especially those of Europe, The U.S., and Japan). 

When fear takes over in the market, people panic and overreact, dumping everything just to hang on to their cash. This happens on a regular basis, as anyone who follows the market knows quite well. Gold had a spectacular run up from August and was due for a fairly significant correction, which is healthy for the sector.

The steep declines in the markets only indicate that what Ben Bernanke and the Federal Reserve have done in an attempt to stimulate the U.S. economy has not worked. Yet, what further options does Bernanke have? Only two! Default on the U.S. debt (not likely) or inflate out of the problem so that debt can be paid off with cheaper currency. The second option will continue to be the choice of the Fed. 

The fact is that commodities have been or are close to reaching oversold levels, while the U.S. dollar and treasuries are overbought. This does not mean that we will not see further price declines in gold, silver, etc. This is a possibility, but at the same time will present a buying opportunity for the wise investors.

The only bubble is the debt bubble, so don't let the "gold bubblers" fool you. 

Gold, silver, and other commodities and the shares of companies engaged in producing them are only going to go much, much higher.